In the economic text book..it is said tat india decided to take loan from the world bank inorder to face the BOP and huge fiscal deficit..but in the video it is told tat india faced all these problms becos of the loan taken
..pls give me a clear answer
In the video we have described the same process as mentioned by you that India decided to take up a loan from the IMF and World Bank in order to face the huge fiscal deficit and the BOP crisis.
The cycle explained under the topic of huge fiscal deficit starts with the deficit present in the economy due to high expenditures on war and administration. Along with this, due to increasing imports and decreasing exports, India was not able to earn enough foreign exchange earnings to meet the payment obligations. As a result, the BOP situation also got worse. Thus, in order to overcome these two situations, India started to borrow from both domestic sources (people within the country) as well as from external sources (international financial institutions from foreign countries). However, such borrowings came with high interest obligations and forced India to take up fresh borrowings. As a result, India fell into a debt trap and BOP crisis. Therefore, in order to manage this crisis, India approached IMF and World Bank for a loan which was granted on the condition that India would initiate the process economic reforms.